Legal Blog - RESPA


Hidden Threats

Sep 16, 2016


A new guide that further explains HUD's RESPA Statement of Policy on Unearned Fees is now available online. NAR asked a well known RESPA expert to develop this guide that details what the new HUD statement means to real estate brokers about the legality of charging fees, such as transaction fees, available at:

HUD, of course, has issued an official statement that administrative fees in excess of the value of services rendered for those fees are a violation of RESPA, whether there's a sharing of such fees or not.

The 7th Circuit Court (Illinois, Indiana, Wisconsin) has ruled that RESPA does not prohibit such fees unless they are shared, although courts in other circuits could affirm the HUD ruling at some which case REALTOR® firms in that area could face substantial lawsuits (possibly class action) for all such fees

Question: I heard about a ruling stating that RESPA prohibits agents from charging administrative fees separate from commission based on a percentage of the sales price. What can we do to avoid having our fees invalidated?

Answer: The case in question was decided in April 2009. As you know, RESPA allows compensation to be paid in cash amounts and percentages of a sales price. In this case, the brokerage charged both an administrative fee and a commission based on a percentage of the gross sales price. Upon reviewing the administrative fee, the court found that the brokerage could not justify the charge of an administrative fee above and beyond the commission. The court’s statement was broad and went against other rulings by other courts on the same issue.

In light of this decision, NVAR has amended its listing forms. All of the language that identified an “Administrative Fee” has been removed. However, this does not mean you cannot charge such a fee, just that it must be done differently. Here are some tips on how you can achieve the same result without running into the same problem as the brokerage in question:

• Label the fee differently than the commission so that it follows as a separate service.
• Disclose the broker compensation in different sections of the listing agreement or on different lines of the HUD sheet.

Disclose that all payments, the commission-based and the flat fee components, represent payment for services rendered by the brokerage.

Question: I am a broker with many licenses hanging in my office. I reviewed them the other day and discovered that a large number of the licensees were no longer current. What am I supposed to do?

Answer: As a broker, it is your responsibility to ensure that agents who are practicing real estate under your brokerage all have active licenses. (18VAC135-20-330)

If one of your agent’s licenses has expired, please send the license back to DPOR. The Code states that when a salesperson or broker’s license is no longer active, it is the duty of the principal broker to return the license by certified mail to DPOR so that it is received within 10 calendar days of the date of termination or status change. The principal broker must indicate on the license the date of termination, and sign the license before returning it. (18VAC135-20-170)

Any real estate activity conducted subsequent to the expiration date of a license may constitute unlicensed activity and be subject to prosecution. (18VAC135-20-140)

What does it mean for your office? You should set up a system by which someone checks the status of licenses once a month. If a license is about to expire or if an agent whose license hangs with your brokerage is no longer practicing, then inform the agent. Give the agent a reasonable number of days to remedy the problem.

If the agent does not renew or no longer wishes to practice real estate, send the license back to DPOR. The Code will only impose liability on brokers who knew or should have known of a problem and failed to take adequate measures to remedy the problem. By instituting such a system, you will ensure that all agents who work for the brokerage have active licenses. This will avoid problems associated with agents who continue to practice with expired licenses, or whose licenses are registered with you but do not practice real estate.

Firms which charge this fee should document that the fee
DOES represent a service which is NOT included with the usual
brokerage commission...and the amount is reasonably commensurate with the cost of the service.
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